Investor keep saying Now is the perfect time to build. Think Airbnb or WhatsApp. was born After all, during the last recession.
And even if late-stage fundraising has slowed, there’s still plenty of cash in early-stage ventures. That’s just short of his record $1.6 billion raised during the 2021 fundraising frenzy.
So what fintech ideas would VCs want to see more of in 2023, and what market opportunities could a rocky macro climate create?
Sifted consulted some of the continent’s top fintech investors.
Potential Founders: Beware!
Embedded Finance for Enterprise
Sophie Winwood, Principal at Anthemis and co-founder of WVCE
We look forward to more embedded financial solutions and financial operations software for enterprises. Given the increasing complexity of products and longer and more difficult sales cycles, we expect companies to take a more sector-specific approach than the more general options currently on the market. For example, a company that targets the travel industry and offers embedded insurance products that allow them to offer buy-now-pay-later plans.
There is a gap in this market as current solutions are primarily targeted at small businesses. The need is usually simpler. And they are adopting technology solutions more often. However, the small business market is likely to be further impacted by the recession, which, combined with already increasing customer acquisition costs chasing small businesses, means that small businesses become less attractive.
However, medium- to large-sized businesses are likely to be more recession-proof and are now looking to diversify their revenue streams. I think innovation at the SME level has laid the groundwork for fintech to move upstream.
This opportunity is also especially “2023” This is because the current economic climate has increased consumer demand for both credit products such as BNPL and protection (i.e. insurance).
Plus bonus points for women or founders from diverse backgrounds.
Solutions to capital market pain points
Rana Yared, General Partner, Balderton
We tend to think of fintech as big consumer brands that are well known to the general public. But we forget the behind-the-scenes profitable giant fintech companies built to address the key pipe and plumbing challenges in powering financial services.
For me, this latter bucket has the biggest chance. I am particularly interested in companies trying to solve the capital markets’ most pressing problems. These include efficient capital management, cost-effective delivery of products to non-institutional customers (such as retirees and replacement customers), and bulky workflows in legacy systems. During his 14 years at Goldman Sachs, where he has been on the front lines of the capital markets division, I understand how important these processes are to increasing value for everyone, from individual investors to large banks. , and have seen firsthand how much room there is. To improve the way things are currently done.
Successful companies in the capital markets don’t necessarily need to break new ground in engineering. But what they need is to significantly reduce operating costs, improve data quality, and gain a deeper understanding of the regulations that affect their clients (traditional financial services providers).
One example that has already achieved great success in the United States is i Capital. It is a technology stack that makes the tedious and operationally costly process of accessing alternative investments (hedge funds, credit funds, ventures, private equity, etc.) more efficient for advised clients (i.e. financial advisor clients). was built. Over ten years, he has taken over the feeder fund business of several major incumbent institutions.
Open banking for financial services
Axel’s partner Luca Bocchio
One area I’m particularly excited about is the evolution from open banking to open finance and eventually open data.
There is a proliferation of open banking aggregators, focused on developing and maintaining connections with banks across Europe. This surge was largely driven by the EU legislation PSD2 (Payment Services Directive 2) and the UK CMA, which created standards for European banking APIs and required banks to provide API access to regulated third parties. (Competition and Markets Authority) caused by order.
What is currently missing is the ability for open banking providers to easily access non-bank data such as insurance, loan, mortgage, payroll and pension data. With the success of open banking, I believe this will change and government agencies will facilitate open access to new data sources beyond banking data. As a result, we will see a wave of new and exciting open finance players and financial instruments.
Looking further ahead, we will see the creation of open data platforms that allow fintechs and non-fintechs to access consumer or enterprise-authorized data that extends beyond financial data. Think utility, automotive, smartphone, smart home/IoT data. We are beginning to see a world where data created and owned by individuals and businesses is used with permission to unlock better products and services powered by new open data platforms.
Other financial super apps
Jeppe Zink, Partner at Northzone
Fintech’s key value drivers have provided convenience to customers such as Stripe (B2B) and Klarna (B2C). These companies have simplified tedious processes into a very simple UI for their customers.
Customer convenience continues to be the North Star of traction and I believe the market needs more “Super App”which allows you to handle a host of related yet complex services within a single UI/platform.
Wealth management; enterprise resource planning (ERP) software that companies can use to manage day-to-day operations such as accounting; and B2B payments are prime examples of a segment ripe for these ideas.
Due diligence platform
Julia Andre, Partner at Index Ventures
With increasing global pressure to screen counterparties, businesses must spend significant time and resources on frequent manual iterations.
But what if there was a way to simplify financial and compliance risk? Where could you have a single platform to continuously passport all your businesses?
This removes huge bottlenecks and facilitates access to financial services by increasing B2B transactions, global partnerships and strengthening the SME economy.
We are in a world where unlimited access to data and incredible advances in AI create opportunities for new entrants to disrupt how entity risk is scrutinized. I would love to talk to entrepreneurs who are rethinking the due diligence market.
Companies with excellent unit economics
Khalil Hefaf, investment manager at Target Global
I think many early stage investors would have been happy to underwrite the seed deal before any revenue was generated in 2021. That’s starting to change.
We are looking for unit economics that deliver positive gross margins right from the start. Expanding a loss-making business for growth at the expense of profitability no longer attracts investors.
Product market fit It can be defined with various parameters. In the absence of monetization, compelling engagement metrics can go a long way. Repeaters, retention, limited churn, cohort growth (new cohorts grow in size, existing cohorts increase activity).
Amy O’Brien is a reporter for Sifted Fintech.she tweets from @Amy_EOBrien When writing a fintech newsletter — you can sign up here.